2017 Milken Institute Global Conference

Guggenheim at the Milken Institute Global Conference

The Milken Institute Global Conference convenes some of the world's most extraordinary people to explore today's most pressing challenges in financial markets, industry sectors, health, government, and education. As a sponsor of the event, Guggenheim Partners is proud to partner with leaders in pursuit of innovative solutions to address those complex issues.

May 3

Closing Notes From the 2017 Milken Institute Global Conference

The 20th installment of the Milken Institute’s annual global conference, sometimes called “America’s Davos,” concluded today, and this one was bigger and better than ever. MIGC was its usual beehive of activity, with more than 4,500 attendees—business and political leaders, institutional investors, and media types—taking in a packed schedule of panel discussions, speeches, meetings, and networking events over three days.

The panel topics, all loosely connected to the Global Conference theme of “Building Meaningful Lives,” were robust, high-level, and diverse, enabling attendees not only to hear from experts in investing and economics, but also to learn about developments in medicine, fintech, robotics, healthcare, alternative energy, brain science, media, impact investing, big data, geopolitics, and more. Our microsite posts—and our tweets—provide highlights of Guggenheim’s participation in the sprawling conference of thought-provoking and mind-expanding content.

There are a few main takeaways from the conference. First, there was a palpable sense of optimism about mankind’s ability to overcome the major problems facing the world, whether it is poverty, cancer, or climate change, as long as there is cooperation between governmental agencies and the private sector, combined with state-of-the-art data analytics and access to capital. Second, investors and corporate executives were generally positive about the state of the economy and the sustainability of current market conditions. Most agreed that while risks are ever present, none were significant or imminent enough to thwart the continued expansion of this late-stage economic cycle.

The third main takeaway was that the transition to the Trump era in American politics and markets is not a cause for great concern. While there were a handful of overtly partisan comments from various speakers, most of the conference panelists and participants were taking a non-partisan, practical approach to evaluating the new Trump policies. Perhaps the greatest unanimity of opinion was that President Trump’s tax proposal, particularly for corporate tax reform, was a key variable for determining the future direction and strength of the U.S. economy.

There is no single way to define what a meaningful life is and how to build it, but perhaps Eleanor Roosevelt, quoted by chairman of the Milken Institute, Mike Milken, was closest when she said: “The purpose of life is to live it, to taste experience to the utmost, to reach out eagerly and without fear for newer and richer experience.”

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May 3

Minerd: Understanding Valuation in Credit Cycles

Chairman of Investments and Global CIO Scott Minerd joined CNBC’s Brian Sullivan from the 2017 Milken Institute Global Conference to discuss his long-term perspective on markets, its application in current market conditions, and strategies for a flattening yield curve.

May 2

Minerd: Expect Summer Stock Market Volatility

Scott Minerd, Chairman of Investments and Global CIO, joins Bloomberg TV from the 2017 Milken Institute Global Conference to discuss the Trump administration’s tax plan, the sustainability of the equity rally, tight spreads in fixed income, and the advisability of selling early.

May 2

Can the U.S. Economic Tailwind Continue?

Alan Schwartz, Executive Chairman of Guggenheim Partners, served on a panel of corporate leaders at the 2017 Milken Institute Global Conference assessing U.S. economic health. While the U.S. economy is entering a period with a number of potential tailwinds for growth, questions remain about its overall direction with respect to globalization. The panel included John Chen, Executive Chairman and CEO of BlackBerry; Francisco González Díaz, CEO of Bancomext; Vasant Prabhu, CFO of Visa Inc.; and Steven Rattner, Chairman of Willett Advisors LLC.

Panel participants weighed in on the state of the U.S. economy, with insights into corporate planning, consumer spending, manufacturing, cross-border transactions, and technological innovation. When examining the strength of “animal spirits” in the equity market, the panel weighed potential positive and negative impacts from the Trump administration’s announced agenda of tax reform, deregulation, and infrastructure investment.

When asked about the enthusiasm in equities, Schwartz noted that the post-election rally has been driven more by improvement in the underlying economic fundamentals than by policy expectations.

“The markets have been more 70 percent fundamentals and 30 percent perception,” he said. “The market is more confident about the trend in deregulation and is waiting to learn more about tax reform. Changes in federal regulation can help stimulate growth in investment, but unfortunately state and local regulations are bigger inhibitors on the economy.”

With questions around the state of globalization, Chen held up NAFTA as an example where citizens of all three participating countries have benefitted. Having served in the White House during the financial crisis, Rattner explained the limits of the president’s policies on economic growth. He also noted that U.S. consumers would be hurt by protectionist trade policies that go against globalization.

“The ability of any president to get manufacturing jobs back in the America is very, very limited. If you shut down free trade, it would add $3,000 to the cost of an average pickup truck,” Rattner said. Schwartz added: “Regarding free trade, we have to do a better job of showing people how they benefit—look no further than interstate free trade in America.”

With insight into consumer spending trends, Prabhu noted that Visa has seen that “spending has been both strong and steady in terms of growth.” Dispelling questions around the health of the consumer, he explained that “affluent millennials spend just as much as baby boomers. Less affluent millennials are the ones showing financial restraint.”

Schwartz believes that the key to economic growth is productivity. He explained that “without a significant increase in the number of workers economic growth has to come from productivity.”

In regard to tax reform, he noted that while fixing the “broken” corporate tax system is relatively straight forward, tying a corporate-tax solution to comprehensive tax reform makes it much more complicated.

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May 2

Walsh on Finding Yield in a Low-Rate World: Go Beyond the Benchmark

Almost a decade of financial repression and unprecedented financial-market intervention by central banks have resulted in a market with persistently low interest rates and rising risks. This environment challenges fixed-income investors to find yield without taking on excessive duration, credit, or liquidity risk. At the 2017 Milken Institute Global Conference, Anne Walsh, Assistant Chief Investment Officer, Fixed Income, for Guggenheim Partners, participated in a panel discussion on this critical topic, called “The Hunt for Yield: Risk-Free Return or Return-Free Risk?”

Walsh explained to the audience that the problem is compounded by the fact that the most popular benchmark to which fixed-income portfolios are managed, the Bloomberg Barclays Aggregate index (Agg), is dominated by low-yielding government-related securities like Treasury and Agency securities. “The fixed income market is approximately $40 trillion. It’s not one market, but lots of different markets.” While Treasury and Agency securities make comprise almost 70 percent of the Agg, there is a significant opportunity beyond those sectors. She added, “There are more ways to add yield than just adding duration or going down in credit. We find yield in structure and liquidity without taking on additional credit risk.”

Walsh said that this hunt for yield takes Guggenheim to sectors that are not represented or under-represented in the benchmark. “It takes us to structured credit, asset-backed securities, areas of non-investment grade and bank loans, which offer floating rate coupons,” said Walsh. “This is important for when the Federal Reserve is raising rates.”

Joining Walsh on the panel, moderated by James Mackintosh of the Wall Street Journal, were Scott Evans, Deputy Comptroller, Asset Management, and CIO of the New York City Retirement Systems; Robert Kricheff, Portfolio Manager and Global High-Yield Strategist for Shenkman Capital; A. J. Murphy, Head of Global Capital Markets for Bank of America Merrill Lynch; and Andrew Whittaker, Vice Chairman of Jefferies and Leucadia National Corp.

The general consensus from the panel was that while there were risks in the markets—panelists mentioned increased volatility over the summer, risks from ETF concentrations, rising levels of M&A activity, and geopolitical risks—the current phase of the credit cycle was likely to persist for some time. As Walsh said, “We are not at the point in the cycle where we stop buying credit, but we do have to be thoughtful and pick our spots.”

To Walsh, it is critical to combine the hard work of rigorous credit and structural analysis with smart portfolio management. “As portfolio managers, you always have to be mindful of liquidity. Portfolios have to be constructed in ways that they are self-amortizing, where there are sources of liquidity other than having to find the next buyer for an asset. So we think a lot about having strong cash flows coming into our portfolios. We like asset-backed and structured securities for that purpose.”

Report: The Core Conundrum
The deep chasm between investors’ return targets and current market realities is creating a conundrum for core fixed-income investors.

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May 1

Minerd on Sustainable Development: Looking For Sustainability of Returns

Guggenheim Partners’ Chairman of Investments and Global Chief Investment Officer Scott Minerd, long an advocate for sustainable development and the institutional investment opportunities it represents, headlined a panel discussion on the topic at the 2017 Milken Institute Global Conference. The panelists agreed that sustainability is moving beyond “concessionary capital”—investments that sacrifice returns for social good—to a more rigorous and focused discipline of measuring results that includes sustainability of returns to investors and communities.

“Sustainability is at risk of becoming a meaningless buzzword,” Minerd said, “if we don’t consider the ability to generate long-term, stable returns.”

Minerd was joined by Anne Finucane, Vice Chairman of Bank of America, Vicki Fuller, Chief Investment Officer of New York State Common Retirement Fund, Clifton Robbins, Founder and CEO of Blue Harbour Group, Markus Voigt, Managing Partner and Founder of AREAM Group, and moderator Susan Mac Cormac of Morrison & Foerster. The panel addressed the evolving approach to sustainable investing in a world where adherence to the principles of ESG—best practices in environmental, social, governance—is becoming increasingly commonplace. Panelists described how their organizations have incorporated sustainable investing into every stage of their investment process, and how it has emerged as a leading differentiator for their firms. “Three years ago, if I met with 50 of our shareholders, not one asked about ESG,” said Finucane. “Today, virtually all of them do.”

Not only is sentiment changing, but the investment proposition has evolved over time. As Minerd said, “Efficiencies and economics will ultimately drive change to sustainable technologies.” Indeed, Voigt said that when he began investing in solar technologies 13 years ago, it cost 10 million euros per megawatt of storage capacity. Today, it is down to 600,000 euros per megawatt. Minerd added that the risk/return profile of global infrastructure projects that are available in the market today will meet the investment requirements of institutional investors.

Firms are responding in a number of ways. First, investment firms and allocators of capital are dedicating larger segments of their resources to sustainable projects and companies that adhere to ESG goals. Fuller summed up the fiduciary position of institutional investors with regard to sustainability. “In our quest to generate returns for current beneficiaries, we do not want to sacrifice returns for future beneficiaries.”

Second, companies are changing their behavior with the codification of sustainability principles. Minerd believes there is a business imperative to stay ahead of sustainability requirements. For example, “utilities, and their investors, will get stuck with stranded assets if they do not keep up with technological advances in renewal energy.”

Third, data tools are being developed to measure the extent to which sustainability goals are being met. Many firms are working on this, but Minerd introduced a new Guggenheim project, developed with the World Wildlife Fund, called the Sustainability Quotient, which will rate how a project passes standardized independent filters for financial, governance, environment, and social goals.

“This will probably take us a few years to work through,” he said. “But our goal is to have an open architecture for an independent, third-party rating.”

In a two-part conversation about the future of energy, Chevron Chairman and CEO John Watson and former U.S. Secretary of Energy Ernst Moniz highlighted the themes at the intersection of energy, the global economy, and geopolitics. Alan Schwartz, Executive Chairman of Guggenheim Partners, moderated the discussion with Moniz who described the drivers of last year’s International Atomic Energy Agency deal with Iran and consequences of nuclear proliferation.

The International Atomic Energy Agency announced, on Jan. 16, 2016, that it verified Iran completed steps to ensure Iran's nuclear program remains peaceful. Moniz explained that Iran’s uranium production and capabilities were two to three months from creating a nuclear bomb.

“A nuclear weapon would be extremely destabilizing and literally an existential threat. We’re not going to have a grand bargain on seven different problems,” Moniz told Schwartz. He noted that economic sanctions previous to the deal had hurt Iran’s economy but did not stop progress in creating a bomb with rockets costing only $1,000 each. “We had to get the existential threat off the table.”

Still, Moniz acknowledged that exclusively focusing only on denuclearization is difficult, especially in countries such as North Korea, which also has artillery tubes pointed at Seoul, South Korea.

“What we need is to get a pause,” Moniz said. “We need to start having conversations with North Korea and the United States to set up what could be a real negotiation with all the key parties.”

He also highlighted that the possibility of a nuclear weapon being used is higher now than during the Cold War and cautioned against a current philosophy taking hold of “the use of a nuclear weapon could be viewed as an escalation intended to end a conventional warfare situation.”

Schwartz and Moniz also discussed the promise of clean energy and technological innovation turning into investment opportunities for the present, not just the future. Schwartz noted that “the cost curves and the demand curves are changing in a way that there are alternative energy opportunities that are purely driven by business even though they have the benefit of helping the environment.” The discussion cited the drop in the cost of energy-efficient LEDs by 90 percent in the last decade. Moniz described the low-carbon energy future as a multi-trillion dollar market that could potentially be driven by innovations in energy storage, linking the energy grid to the Internet of Things, and personal autonomous vehicles in urban environments.

Moniz also highlighted cutting edge energy solutions that he described as “more exotic holy grails,” such as combining CO2, sunlight, and water to convert them for a “drop-in” hydrocarbon fuel.

Watson, in a conversation with Brian Sullivan, Co-Anchor of CNBC's "Power Lunch," discussed his views on renewables versus the oil industry, the impact of natural gas on the industry, innovation in exploration, cooperation in drilling across the industry, and geopolitical pressures and constraints on the price of oil. Watson highlighted the complexity in market dynamics between production costs and currency fluctuations driven by geopolitical pressures and economic sanctions for countries such as Russia. Despite economic sanctions, Russia remained a strong oil and gas producer because as its currency collapsed, production costs shrank as well. He noted: “There are always unintended consequences when actions are taken, and Russia remains a formidable energy producer.”

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May 1

Mnuchin and Minerd Open 2017 Milken Institute Global Conference

U.S. Treasury Secretary Steven Mnuchin and Scott Minerd, Guggenheim Partners’ Chairman of Investments and Global Chief Investment Officer, kicked off the 2017 Milken Institute Global Conference in an opening session that examined the way in which markets and business will be impacted by Trump administration economic policy.

Mnuchin’s 30-minute conversation with Fox Business News anchor Maria Bartiromo was followed by a discussion among senior financial market influencers, led by Minerd, Mohamed A. El-Erian, Chief Economic Advisor for Allianz, David M. Solomon, President and Co-Chief Operating Officer of Goldman Sachs, Thomas Finke, Chairman and CEO of Barings, and Arunma Oteh, Vice President and Treasurer of the World Bank.

Coming into office with a mandate for improving economic and geopolitical imbalances, Mnuchin was clear about the policy goals of the Trump administration. “We are focused on an economic plan that focuses on tax reform, proper regulation, and fair trade,” he told Bartiromo. The immediate challenge is the tax proposal forwarded last week, which contains simplified and lower personal and corporate taxes, as well as a reduction in the range and amount of allowable tax deductions. The economic boost from such a plan is potentially significant, but so is the impact on national debt. The cost, said Mnuchin, “will be paid through revenues generated by economic growth and eliminating tax deductions.”

Minerd is optimistic. The plan “is pretty broad. We’ve got to find some sources of revenue and places to cut from expenses if we are going to get to revenue neutral, but I think the Secretary has made a good first start at it.”

With the market pricing in optimism, the key is implementation. “While I think that what we are hearing from Washington gives us reason to be optimistic, there is a moment where we will have to have some delivery,” Minerd said. “So I am a little bit concerned that if we don’t see movement on tax reform before the end of the year, or we don’t see some movement on health care, the market will start to doubt the administration’s ability to deliver. So that is the big challenge—can they deliver on their promises, and which promises can they deliver on?”

The success of the administration’s goals are not just critical for the future of the United States. As the World Bank’s Oteh said, “We need the U.S. to grow for the rest of the world to grow.”

When asked about the direction of Fed policy given the weak first quarter GDP results, Minerd stated that the Fed was still on the right track. The Fed will likely raise rates two more times this year, he said, but forward guidance is an important tool with regard to normalizing its balance sheet. Minerd does not expect the Fed to hike the fed funds rate and announce its tapering plan at the same meeting. Thus, he expects to see the next hike in June and an announcement related to managing down the size of its balance sheet in September. This timing will also enable Fed Chair Janet Yellen to make a smoother transition to the next Fed chair if her tenure ends next year.

Regarding the dollar, Minerd believes that the Treasury should not worry. “Treasury shouldn’t be focused so much on the dollar. If they get the economy right, the currency will work itself out.”

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May 1

Minerd: 3% Growth Is Possible in 2018 with Right Tax Policy

Chairman of Investments and Global CIO Scott Minerd discusses markets, policy, and portfolio strategy with Fox Business’s Maria Bartiromo at the 2017 Milken Institute Global Conference. Among other issues he is focused on, Minerd believes the outcome of the tax policy debate is an important determinant of growth and market performance going forward.

May 1

Global CIO Outlook: The Keys to American Growth

Global CIO Scott Minerd advises policymakers to dust off their textbooks and review the four essential factors of production that are integral to successful implementation of a pro-growth economic agenda—land, labor, capital, and entrepreneurship. Says Minerd: “Every government policy decision affects them in one way or another, and success in maximizing economic output relies upon optimizing each input.” In particular, with negative long-term demographic trends in place, sound immigration policy should seek to attract young, foreign-born workers to the United States and incentivize them to stay.

Follow Guggenheim at the Milken Institute Global Conference

From May 1 through May 3, a delegation of thought leaders from Guggenheim Partners will participate in panel discussions and conversations about critical topics including sustainability, investments in infrastructure, developments in the credit markets, and the path forward for the U.S. economy. The Guggenheim delegation will include:

Guggenheim Welcomes You to the Milken Institute Global Conference

The Milken Institute Global Conference gathers leading thinkers in disparate disciplines to exchange ideas and solve some of the world's toughest challenges. These CEOs, investors, innovators, policymakers, philanthropists, educators and scientists challenge each other's thinking in a sweeping and ambitious program touching on topics from financial markets, economic development, energy, and global health to public policy, education, media and technology.

Guggenheim Partners is privileged to have three representatives at the conference with unique perspectives and expertise. Check back regularly for updates.

Milken Institute Global Conference 2017

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